UK government backtracks on fracking

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UK government enthusiasm for hydraulically fractured shale gas looks to be waning fast. The latest signs of this were picked up last week by Steve Topple in The Canary:

“Campaigners are claiming that the arguments for fracking are ‘toppling like dominoes’ after the government appeared to backtrack not once, but twice last week over its commitment to the controversial industry.”

Topple highlights two recent government papers on the future of UK gas that notably lack the usual government enthusiasm for UK fracking. The Gas Security of Supply paper is cautious:

“The development of shale gas could provide a valuable new source of gas for the GB market… Whilst the government is optimistic about the potential for shale gas in the UK, given the industry is currently in an exploratory stage, it is not yet known how much of the UK shale gas resource will ultimately be recoverable.”

The government’s shift in attitude toward shale gas reflects concerns raised in two recent geology papers (here and here-p18) which argue that the UK has the wrong kind of shale deposits, and that profitable gas recovery may be impossible.

However, it is more likely that government is responding to growing investor flight from the fracking industry. As we reported in May, despite claims by environmental groups, Barclays’ decision to pull out of the industry was solely due to concerns about the profitability of the industry. Indeed, in July we learned that fracking companies had already gone cap in hand to the UK government in search of public subsidies to make up for a lack of interest from private investors.

In fact, the UK government may have already performed a crucial U-turn over fracking. Evidence for this comes from a new paper from the Centre for Policy Studies:

“The UK’s 2012 Gas Generation Strategy stated that 26 GW of new gas fired generation would be needed by 2030. On the current trajectory the UK will spectacularly miss that goal, undershooting by nearly 12 GW.

“In response, the Government decided to encourage the importing of electricity from continental Europe through interconnectors. The 2012 projections suggested that the UK would generate 123.9 TWh of electricity from gas fired power stations (known as CCGTs) in 2030 and import only 6 TWh. By 2016, these figures had changed to just 68 TWh from gas plants and the import of 67 TWh of electricity.”

For the time being at least, imported electricity is significantly cheaper than domestic gas fired generation. As a result, very few of the government approved new gas power stations have been built. This means that future demand for domestic shale gas will be significantly less than the levels set out in fracking company business plans and investor brochures. Far from having a shortage of gas – as the proponents of fracking hoped – the UK may have more than enough (at least for now) from its own and Norway’s North Sea fields to fuel the few new gas power stations that are actually built.

UK government policy, meanwhile, appears to have shifted in the direction of domestic renewables and nuclear topped up as required by imports from the continent. The dream of a UK fracking future, it would appear, is already fading in the rear view mirror.